Japan, yen still falling against the dollar: new 34-year low

Lo yen Japanese resumed its downward run this morning, marking a new 34-year low on the dollar at 1:160.03. The Japanese currency also continued to lose ground against the euro, breaking 1:171 – the lowest exchange rate since the launch of the single European currency in 1999 – before recovering slightly. The Bank of Japan (BoJ) decided to keep its rate policy unchanged on Friday, after bringing key rates just above zero for the first time in 17 years on March 19. The BoJ announced that it will continue purchases of government bonds “in accordance with the decisions taken during the March 2024 monetary policy meeting”. At the end of 2023 the BoJ held 54 percent of the bonds issued by the Japanese state, thus helping to keep long-term interest rates under control on the vast mass of Japanese public debt, but making the bond market illiquid. During a press conference, the governor of the central bank, Kazuo Ueda, argued that the weakness of the yen “does not have a significant impact on underlying price inflation”: words that seem to rule out a further increase in reference rates in the near future.

The Bank of the Japan has reduced purchases of Japanese sovereign bonds by 36 percent over the 2023-2024 fiscal year, which just ended. This is certified by the data published on April 87.600st by the central bank, according to which the total bonds issued by the Japanese state and purchased by the BoJ in the fiscal year just ended amounted to 579 billion yen (approximately XNUMX billion dollars at the current exchange rate).

The BoJ approved an important political change on March 19, deciding to put an end to the negative interest rate policy it has maintained for 17 years, and to the yield curve control programs, in addition to the purchases of ETF funds and other investment products. financial risk. The decision was taken at the end of a two-day political meeting held yesterday. There BoJ decided to guide overnight lending rates down to 0-0.1 percent. The Bank of Japan was alone among the central banks of the major global economies in still maintaining negative interest rates, despite the sharp acceleration in inflation rates following the coronavirus pandemic. COVID-19.

The decision follows the announcement of record wage increases achieved by the Japanese trade union confederation Rengo the previous week. The Japanese central bank was awaiting the formal results of wage negotiations between large companies and the Japanese trade union confederation. In fact, before abandoning negative rates, the BoJ intended to ensure that the country can stably sustain an inflation rate of around 2 percent. The last increase in key rates established by the Japanese central bank dates back to February 2007, before the global financial crisis the following year.